Green supply chain initiatives in the European food and retailing industry. N.M. van der Grijp F. den Hond

Transcription

1 Green supply chain initiatives in the European food and retailing industry N.M. van der Grijp F. den Hond

2 Green supply chain initiatives in the European food and retailing industry N.M. van der Grijp, F. den Hond Report number R-99/07 July 1999

3 IVM Institute for Environmental Studies Vrije Universiteit De Boelelaan HV Amsterdam The Netherlands Tel Fax ISBN Copyright 1999, Institute for Environmental Studies All rights reserved. No part of this publication may be reproduced, stored in a retrieval system or transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise without the prior written permission of the copyrightholder.

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5 Greening of food supply chains i Contents Summary iii 1. Objectives and approach Introduction Objectives of the study Approach of the study Outline of the report 3 2. Agricultural practice and policy in Europe Introduction Agricultural activity and pesticide use in Europe Agricultural policy at EU level More sustainable agricultural production methods Standards and regulations concerning organic agriculture Organic production in Europe Conclusions Food market developments and trends in Europe Introduction The market for food in Europe Trends and discussion themes in the food and retailing industry Conclusions Country profiles Introduction The Netherlands Austria Belgium Denmark Finland France Germany Greece Italy Norway Portugal Spain Sweden Switzerland United Kingdom Position of the Netherlands Introduction 61

6 ii Institute for Environmental Studies 5.2 Comparison Final remarks 64 References 67 Appendix I. Questionnaire on reduction of pesticide use by supply chain management 71

7 Greening of food supply chains iii Summary Traditionally, the reduction of pesticide use by farmers has been dealt with exclusively by public policy makers and farmers organisations. Their policies, however, have not always been as effective as was hoped for. More recently, the influencing of farmers has taken a new turn, because companies in the conventional food industry and retail trade are taking initiatives aimed to increase the market share of food products produced with substantially less or no pesticides. This report aims to give more insight in the nature of these initiatives. Thus, the objective of the study is to identify European corporate initiatives aimed at more sustainable agricultural practices, with a focus on the reduction of pesticide use. To this end, an inventory was made of initiatives in all member states of the European Union (EU), plus Norway and Switzerland, while focusing on the market leaders in each country. Because of time pressure, it was later decided to leave Ireland and Luxembourg out of the study. To limit the scope of the study, the inventory focuses on all agricultural food products, with the exception of meat. It is not aimed to give a comprehensive overview of all corporate initiatives; our goal is to sketch only the outlines of the relevant developments in the chosen countries in the form of a country profile. To give these profiles more background, attention is also paid to the nature of national agriculture, the present level of pesticide use and relevant government policies and measures. The study was commissioned by the Dutch ministry of Housing, Spatial Planning and Environment (VROM). The ministry is presently preparing a document on pesticide policy for the period after 2000 as a follow-up to the Multi-Year Crop Protection Plan ( MeerJaren Plan Gewasbescherming ) that covers the period from 1991 until Our inventory of corporate initiatives fits in the governmental preparations for the new policy plan. The study is meant as a benchmark for the situation in the Netherlands. The final goal is to make an assessment of the Dutch position in comparison to that of other European countries. European agriculture is characterised by a broad heterogeneity of production systems. At the overall level, most of these systems have been subject to intensification and concentration of production in the last 40 years, partly due to the Common Agricultural Policy (CAP) of the EU. The level of pesticide use differs considerably between and within European countries. Greenhouse cultivation and irrigated farming, for example, usually take a lot of external inputs. On the other hand, small-scale, traditional production generally coincides with low inputs of agricultural chemicals. With its very intensive farming system, the Netherlands has the highest pesticide consumption per hectare in Europe. In the first half of the 1990s, the total volume of pesticide products sold in Europe fell by some 17.7%. The biggest reductions were realised in Finland, Sweden, and the Netherlands. However, reduction of the pesticide load does not necessarily mean that the environmental pressure is reduced, because in many cases farmers are using less of more potent products. Recent reforms of the CAP system are aimed at, among other objectives, reducing the environmental impact of agriculture, thus reinforcing various trends towards sustainable

8 iv Institute for Environmental Studies agricultural practices, including organic farming, precision farming and integrated crop management (ICM). At present, organic agriculture is the only type of the sustainable agricultural production methods with a certification system for its products, which makes them recognisable in the market and suitable for the payment of premium prices. Usually, a two-year transition period from conventional to organic production is required for certification. During the study, we had difficulties to identify companies developing precision farming or ICM programmes, simply because products produced under such protocols are hardly recognisable in the market, and companies have more difficulties to communicate the less chemical inputs message to the public than the organic one. However, our research findings give the impression that large retailers and food processing companies are increasingly developing programmes to define and implement sustainable agricultural practices that could be defined as precision farming or ICM. This is also the case in the Netherlands, as we found several examples of retailers and food producers seriously committed to reduce chemical inputs. Moreover, it may be even stated that the Netherlands is one of the European countries in the forefront, with the largest Dutch retailer Albert Heijn already starting to implement an ICM programme ten years ago and the Dutch eco-labelling system ( Milieukeur ) covering a selection of agricultural food products. Thus, the emphasis in our study has been on the identification of corporate initiatives to stimulate organic production and consumption. European organic production steeply increased in the last decade: all European countries showed a growth of organic acreage and the number of farmers involved. When combining the figures of relative share and average annual growth, four groups of countries can be distinguished: 1. booming countries (Denmark, Finland, and Italy); 2. stabilising countries (Austria, Germany, and Sweden); 3. countries with a high potential (Greece, Ireland, Norway, Portugal, and Spain); 4. countries lagging behind (Belgium, France, Luxembourg, the Netherlands, and the UK). For Switzerland, it was not possible to make a proper assessment because the necessary data about the development of organic production were not available. However, Switzerland is expected to qualify for the group of either booming or stabilising countries. As the categorisation shows, the Netherlands is one of the countries lagging behind in organic production. It has been suggested that the intensive nature of Dutch agriculture makes it more difficult to convert to organic farming methods. Another factor limiting growth could be the relatively late entry into force of the government support system that initially provided for only moderate conversion premiums. However, the premiums were raised in early The supply side of the European organic food market is highly fragmented, with thousands of small to medium-sized specialist companies in operation. In recent years, however, there have been several important developments that are changing the characteristics of the market. First, some of the large multinational food companies based in Europe started to offer organic product lines besides their conventional ones. Basically, these companies choose between two strategies, either the taking over of a specialist company

9 Greening of food supply chains v or the establishing of a new product line from scratch. Second, large retailers became increasingly involved in the organic market, and launched organic retailer own brands. Third, specialist suppliers changed their strategic behaviour by forming alliances and partnerships to benefit from economies of scale and access to distribution channels, as well as to help ensuring more consistent supplies. Organic food is one of the fastest growing sectors of the entire European food market. Germany, the UK and France represent the largest markets for organic products in absolute terms. Regarding relative consumption shares, we consider the value of 1% as the limit value indicating whether the organic market in a certain country has left its niche and has become mainstream. Five European countries already passed the magical line, notably Austria, Denmark, Germany, Sweden, and Switzerland. Sales in the Netherlands are still under 1%. It is suggested that the main reasons for this arrears include the late introduction of organic products by the major supermarket chains, and the inclination of Dutch people not to spend too much money on food. The countries now booming or stabilising in organic production are the ones where government support to farmers in conversion was introduced in an early stage and can be assessed as high. The exception to this rule is Italy where government support is low or medium, depending on the region. The countries lagging behind are the ones where government support was introduced relatively late and/ or premiums were only moderate. In several countries, financial support to farmers has recently been raised to at least the average European level. The consequences of these policy changes are not visible yet. In several countries, conventional supermarkets have a share of 50% or more in the sales of organic products. A high involvement of the supermarket channel usually coincides with domestic organic consumption above or at the limit value of 1%. This is not the case in Belgium where supermarket involvement is above 50%, but sales are still under 1%. In the Netherlands, the involvement of the supermarket channel is still under 50% reflecting the late introduction of organic products by the large retailers. Moreover, up to now only one of the three largest retailers introduced an extensive range of organic products. A high involvement of the conventional food processing industry in the organic market is not always a prerequisite for a well-developed consumer market. For example, the relatively high consumption of organic products in countries such as Austria, Denmark, Germany and Switzerland is not accompanied by a medium to high involvement of the conventional food producers, but is rather the result of a strong involvement of the specialist organic industry. On the other hand, the relationship between involvement of the conventional food industry and organic production is more clearly defined whereas a higher level of industrial involvement usually goes together with a higher relative share of organic production. In the Netherlands, the involvement of the food industry is somewhere between low and medium, but this may change since a broad variety of companies is presently showing interest to move into the organic market. The next years will prove if this trend is strong enough to hold on. The study provides a snapshot at a given moment in time. As the developments in the market for organic products are going fast or are even speeding up, the situation may radically change in the next few years. In relation to the Netherlands, the recent increase

10 vi Institute for Environmental Studies of government support and supermarket involvement may be reasons for an accelerated development of organic production and consumption.

11 Greening of food supply chains 1 1. Objectives and approach 1.1 Introduction Traditionally, the reduction of pesticide use by farmers has been dealt with exclusively by public policy makers and farmers organisations. Their policies, however, have not always been as effective as was hoped for. More recently, the influencing of farmers has taken a new turn, because companies in the conventional food industry and retail trade are taking initiatives aimed to increase the market share of food products produced with substantially less or no pesticides. This report aims to give more insight in the nature of these initiatives. 1.2 Objectives of the study The objective of the study is to get an overview of the present developments in Europe concerning corporate initiatives aimed at more sustainable agricultural practices, with a focus on the reduction of pesticide use. To this end, an inventory was made of food industry initiatives in all EU member states, plus Norway and Switzerland, while focusing on the market leaders in each country. Because of time pressure, it was later decided to leave Ireland and Luxembourg out of the study. To limit the scope of the study, the inventory focuses on all agricultural food products, with the exception of meat. It is not aimed to give a comprehensive overview of all corporate initiatives; our goal is to sketch only the outlines of the relevant developments in the chosen countries in the form of a country profile. To give these profiles more background, attention is also paid to the nature of national agriculture, the present level of pesticide use and relevant government policies and measures. The study was commissioned by the Dutch ministry of Housing, Spatial Planning and Environment (VROM). The ministry is presently preparing a document on pesticide policy for the period after 2000 as a follow-up to the Multi-Year Crop Protection Plan ( MeerJaren Plan Gewasbescherming ) that covers the period from 1991 until Our inventory of corporate initiatives fits in the governmental preparations for the new policy plan. The study is meant as a benchmark for the situation in the Netherlands. The final goal is to make an assessment of the Dutch position in comparison to that of other European countries. Agricultural pesticide policy in the Netherlands has traditionally been oriented at keeping the environmental impact of pesticide use within established norms while simultaneously guaranteeing the availability in the market of a sufficiently wide range of pesticide products for crop protection not to endanger the continuity of the farming sector. Specifically, it is aimed at (1) a reduction of the load of pesticides, (2) a diminishing of farmers dependency of pesticide use in their cropping and husbandry systems, and (3) a reduction of the environmental impact of pesticide use (Ministerie van LNV, 1991). Progress has been made on the first and third objectives by a range of technical adaptations in the formulation and application of pesticide products, but no significant progress has been made concerning the second policy objective (Van den Heuvel et al, 1997). This may be due to a bias in pesticide policy towards technical measures in the environ-

12 2 Institute for Environmental Studies mental impact chain at the expense of attention to the agro-food production chain (see Figure 1). For example, it has been suggested that increased demand for organically grown produce, stimulated by various policy measures along the production chain, may act as a lever in helping farmers to diminish their dependency of pesticide products (Groenewegen et al., 1997). Thus, private initiatives may be instrumental in reducing farmers dependency of pesticides. However, the reduction of pesticide use by farmers using more sustainable production techniques does not necessarily imply that conventional farmers become less dependent on chemical inputs. Production Chain Environmental Impact Chain Pesticides & Fertilizers Agricultural Production Soil Water Air Processing Wholesale Trade Distribution & Retail Consumption Figure 1 (adapted from Groenewegen et al., 1997). 1.3 Approach of the study The approach of the study was down to earth. We started with a questionnaire which we sent by fax or to stakeholders from NGOs and research institutes we already knew or could easily identify (see Annex 1 for the questionnaire). Our idea was to get from them some clues for further research. However, the response was at first disappointing;

13 Greening of food supply chains 3 the number of questionnaires returned was low and several people commented negatively on the load of work our questionnaire involved. But, unexpectedly, we kept receiving reactions, and after all it may be concluded that it was a quite successful attempt. In addition to the questionnaire, we collected information by way of literature search, Internet search, telephone calls and a few personal interviews. During our research we came across three studies, all published in 1998, which have been the basis for the country profiles. The first one is a report from the English consultancy agency Leatherhead Food RA, giving an overview of the European organic foods market (Comber, 1998). The second one is a German book about organic agriculture in Europe, consisting of a series of country perspectives (Willer (ed.), 1998), and the third one is about the environmental effects of the reform of the European Union Common Agricultural Policy, including 14 national reports (Brouwer & Lowe (eds.) 1998). Two Internet web-sites need also to be mentioned because they proved to be very useful, while providing the latest news. The first one is the site of Biofood.Net ( which is meant as a world wide information platform for organic agriculture, consisting of a consumer and a business section. Biofood.Net was launched in September 1998 in co-operation with a number of organic certifying organisations, including Biogarantie from Belgium, Bioagricoop from Italy, the Soil Association from the UK, and SKAL from the Netherlands. The second site is that of Agriholland ( it is only accessible for people able to read Dutch. Agriholland provides weekly overviews of agricultural news from the Netherlands but also from other European countries. Their scope is quite broad; attention is paid, for example, to environmental and consumer issues, and to activities of retailers and food industry. Furthermore, we visited BIO FACH 1999, the largest ecological trade fair in the world, and a seminar on the breakthrough of organic products, organised by the Dutch consultancy agency Aurelia! Advies. These visits provided us with new contacts, and further insights about trends in market initiatives. After finalising the draft version of the report, we asked country experts to comment on the respective country profiles. Several of them reacted positively to our request and helped us to improve the draft texts. 1.4 Outline of the report The structure of the report is as following. Chapter 2 provides the context to the inventory of market initiatives by describing agricultural practice and policy in Europe. Chapter 3 gives a general overview of the European consumer market for food and addresses present developments in the food and retailing industries that are relevant to the issue of greening of food supply chains. Chapter 4 consists of 15 country profiles pointing out the initiatives of national retailing and food processing industries against the background of trends in more sustainable agricultural production and consumption, government policy and the influences of other stakeholders. Chapter 5, finally, compares the position of the Netherlands with that of other European countries.

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15 Greening of food supply chains 5 2. Agricultural practice and policy in Europe 2.1 Introduction This chapter aims to give a general context to the inventory of market initiatives to increase sustainability in the European food and retailing industry. Section 2.2 provides an overview of agricultural activity and pesticide use in Europe. Section 2.3 describes the agricultural policy of the EU. Section 2.4 introduces various forms of environmentally sustainable agricultural practices. Section 2.5 deals with standards and regulations concerning organic agriculture. Section 2.6 pays attention to estimations about organic production in Europe. Section 2.7, finally, contains some concluding remarks. 2.2 Agricultural activity and pesticide use in Europe European agriculture is characterised by a broad geographical heterogeneity of production systems. At the overall level, however, most of these systems have been subject to intensification and concentration of production in the last 40 years. Table 2.1 gives some basic figures about the agricultural activity in the member states of the EU. Similar figures were not available for Norway and Switzerland. The table shows that France and Spain have by far the highest acreage of agricultural land in Europe, respectively 30,056,000 ha and 25,093,000 ha in Other countries with a large amount of agricultural land are the UK, Germany and Italy. The Netherlands, with its 1,981,000 ha, has only a small acreage of agriculture, but it has by far the highest output per hectare. Most EU member states (9 out of 15) are net importers of agricultural products. Denmark, France, Greece, Ireland, the Netherlands, and Spain are net exporters. The level of pesticide use differs considerably between and within European countries. Greenhouse cultivation and irrigated farming, for example, usually take a lot of external inputs. On the other hand, small-scale, traditional production generally coincides with low inputs of agricultural chemicals. Table 2.2 gives an overview of the volume of pesticide products sold in the EU in relation to agricultural land use. In absolute terms, France and Italy consume the largest amounts of pesticide products. When measured in kg/ha, the Netherlands (5,46 kg/ha), Belgium (3,42 kg/ha), and Italy (3,28 kg/ha) are on top of the list. Countries with the lowest consumption figures, notably less than 1 kg/ha, include Austria, Finland, Ireland, and Sweden. Table 2.2 also shows trends in consumption, comparing the figures from 1995 to those from In Europe, the total volume of pesticide products sold fell by some 17.7% in the first half of the 1990s (Brouwer & Lowe, 1998). The biggest reductions were realised in Finland (-47.8%), Sweden (-47.8%), and the Netherlands (-42.0%). However, reduction of the pesticide load does not necessarily mean that the environmental pressure is reduced, because in many cases farmers are using less of more potent products (Brouwer & Lowe). Moreover, in some countries, including Greece, Ireland and Portugal, the usage of pesticide products actually increased (Brouwer & Lowe, 1998). More generally, the volumes sold in southern Europe fell at lower rates than in Northern Europe.

16 6 Institute for Environmental Studies Table 2.1 Basic figures related to agricultural land use and agricultural production in the 15 EU member states, plus Norway and Switzerland, in Country Total agricultural land (ha) Total value of agricultural production (Mio ECU) Value of agricultural production per hectare (ECU) Share of imports of agricultural products (%) Share of exports of agricultural products (%) Austria 3,412,000 3,583 1, Belgium 1,375,000 6,592 4, Denmark 2,721,000 6,932 2, Finland 2,150,000 2,306 1, France 30,168,000 46,953 1, Germany 17,335,000 32,745 1, Greece 3,456,000 8,815 2, Ireland 4,325,000 4,435 1, Italy 14,685,000 35,081 2, Luxembourg 127, , Netherlands 1,848,000 16,385 8, Portugal 3,967,000 4,347 1, Spain 29,649,000 26, Sweden 3,177,000 3,333 1, UK 15,858,000 18,997 1, Total EU 134,261, ,538 1, Table based on: Eurostat, European Commission, Directorate-General for Agriculture, Willer (1998). Table 2.2 Volume of pesticide products sold in the European Union in 1995 measured in tonnes of active ingredients, compared to 1990, and in relation to total agricultural land use. Country Total agricultural land use in 1995 Pesticide products sold in 1995 (in tonnes a.i.) Kg/ha a.i. in /1990 (%) Austria 3,425,000 3, Belgium 1,337,000 4, Denmark 2,727,000 4, Finland 2,161,000 1, France 28,267,000 84, Germany a 17,157,000 25, Greece 3,465,000 8, b Ireland 4,325,000 2, Italy 14,685,000 48, b Luxembourg 127, Netherlands 1,999,000 10, Portugal 3,925,000 9, b Spain 25,230,000 27, Sweden 3,060,000 1, United Kingdom 16,449,000 20, Total EU 128,370, , a-situation in FRG; b-situation 1995/1991. Table based on: Brouwer & Lowe, 1998, Eurostat, 1998.

17 Greening of food supply chains Agricultural policy at EU level The Common Agricultural Policy (CAP) of the European Union was set up in 1958, and replaced the national agricultural policies of the EU member states. It has certainly favoured the modernisation of agriculture in Europe, but the intensification of agricultural production has also led to problems of surpluses and environmental degradation. The increasing awareness of the need for an economically sounder and environmentally friendlier policy has inspired attempts to adjust the CAP from the 1980s onwards. The 1992 CAP reform marked a turning point. It was aimed primarily at restructuring agricultural markets. One of the central elements of the CAP reform was the encouragement of farmers to use less intensive production methods, thereby reducing their impact on the environment and cutting the creation of unwanted surpluses. To this end, the CAP Reform of 1992 saw the introduction of both mainstream measures and accompanying measures, such as the agri-environment programme: EC Regulation 2078/92. The purpose of this scheme is to contribute to the achievement of policy objectives regarding agriculture and the environment, and to contribute to providing an appropriate income for farmers. Aid is for example available for farmers who undertake to reduce substantially their use of fertilisers and/or plant protection products, or to keep to the reductions already made, or to introduce or continue with organic farming methods. Thus, regulation 2078/92 provides a framework for all EU member states to implement policies to support organic farming. As it is now, the underlying principles of the implemented policies differ from country to country, and in case of Germany and Italy, from region to region. In most European countries, for example, conversion premiums largely differ according to the type of crop concerned. Higher premiums are generally paid for the conversion of greenhouse cultivation, irrigated cultivation, fruit cultivation, and wine and olive growing. Most of the schemes, but not all, allow for both new farmers converting to, and existing farmers continuing with, organic production to qualify for aid (Lampkin, 1996). Several countries with relatively low conversion premiums recently increased their financial support to organic agriculture, including Belgium, France, the Netherlands and the UK. The EU regulation also includes provisions for training and demonstration in relation to good organic farming practice. Currently, the EU is engaged in a further round of CAP reform as part of Agenda This further round has the following objectives: increased competitiveness, high standards of food safety and quality, ensuring a fair standard of living for the agricultural community, the fuller integration of environmental goals, the creation of alternative job and income opportunities in rural areas, and simplification of EU legislation and administration (Brouwer & Lowe, 1998). These changes are seen as necessary to respond to contemporary public demands on agriculture and the countryside and to prepare the CAP for the imminent enlargement of the EU and for the reopening of world trade negotiations on agriculture. 2.4 More sustainable agricultural production methods Due to the series of environmental problems related to European agriculture, various forms of environmentally more sustainable agricultural practices have come at the focus

18 8 Institute for Environmental Studies of attention. They all have in common that external inputs are drastically reduced. One of the production methods presently gaining ground is organic agriculture. IFOAM, the International Federation of Organic Agricultural Movements, describes organic agriculture as following ( 1/11/1998): Organic agriculture includes all agricultural systems that promote the environmentally, socially and economically sound production of food and fibres. These systems take local soil fertility as a key to successful production. By respecting the natural capacity of plants, animals and the landscape, it aims to optimise quality in all aspects of agriculture and the environment. Organic agriculture reduces external inputs by refraining from the use of chemicalsynthetic fertilisers, pesticides and pharmaceuticals. An alternative method to reduce the environmental impact of agriculture is through the development of what is called precision farming. In this concept, information technology is considered crucial for optimising operational decisions concerning agricultural input variables. The argument is that the management of spatial and temporal variability of agricultural land may be optimised through the processing and use of data on soil, weather, and productivity at a level of resolution smaller than the individual field. In precision farming, expert decision support systems significantly enhance, or might even substitute for, the farmer s good judgement in managing the complexity and uncertainty of realising maximum yield or profit (Den Hond et al., 1999). Integrated crop management (ICM) has been presented as a third alternative to reducing the environmental impact of agriculture, but also as an intermitting stage for farmers that gradually adapt their cropping systems toward either organic or precision farming (Den Hond et al. 1999). ICM, though much used and debated, is not easily defined. It could be considered as a step-wise implementation of a range of agricultural practices that more or less radically diverge from conventional agriculture. ICM is aimed at (Vos, 1992): maintenance of the chemical, physical or biological properties of the soil as a healthy environment for crop production in the future; no accumulation of hazardous or potentially hazardous compounds in the soil, including fertilisers, pesticides, or their residues; prevention of concentrations of pesticides or their residues and of mineral nutrients, notably nitrate, above agreed standards in soil, groundwater and in surface waters; minimal emissions into the atmosphere of volatile compounds such as pesticides, ammonia and nitrogen oxides. Thus, ICM aims at minimising the use of fertilisers and pesticide products by favouring natural predators, crop rotation and hand weeding. Pests need not be eliminated, but rather kept under control, at levels below which they cause economic damage. In this manner it encompasses the earlier concept of integrated pest management (IPM) (Perkins, 1982). This is largely done through managing the cropping system. Increased attention is given to a range of cropping variables that potentially add to controlling pest damage, such as crop rotations, the application rate of fertilisers, choice of resistant cultivars, phytosanitary measures, soil preparation in the field, timing of seeding, etc. Pesticides are used as one of a range of pest control methods rather than the crop protection method of choice. Supporters of ICM see it as a quiet revolution, winning the best of both worlds by marrying organic techniques with the option of chemicals if things go

19 Greening of food supply chains 9 wrong. Sceptics argue that without (legally) binding rules, ICM can mean more or less anything. At present, organic agriculture is the only type of the more sustainable agricultural production methods with a certification system for its products, which makes them recognisable in the market and suitable for the payment of premium prices. 2.5 Standards and regulations concerning organic agriculture The integrity of organic products is safeguarded by legislation and standards, which require regular inspections of all producers and manufacturers, and certification according to strict standards. The goal of certification is to ensure that each producer or handler of organic food or fibres meets the standards for organic production, processing and handling. Certification always includes on-site inspection of the production operation. The certification process focuses on the methods and materials used in production. Certified organic products can command premium prices in the market which, given arrangements along the production chain, may be translated into a premium for the farmer. Usually, a two-year transition period from conventional to organic production is required for certification. Crops grown on land which is in transition to organic can not be labelled as organic. The International Federation of Organic Agricultural Movements (IFOAM) is an important organisation in the development of organic standard setting. IFOAM aims to provide minimum standards allowing national and regional certification programmes a basis for developing detailed production standards. The IFOAM standards are subject to constant review and a new set of basic standards is published every two years. To support inspection and certification activities, at least one hundred sets of standards have been developed so far at the national and regional level. These standards are very varied, due to socio-cultural, economic and geo-climatic conditions. The IFOAM accreditation system is meant to strengthen the regional or national certification standards. Accreditation is the process used to ensure that each certifying agent is competent, independent of financial concern in the operations it certifies, and maintaining the legal standard for organic production. IFOAM has started the accreditation of private and state run certification programs in The IFOAM accreditation programme is meant to ensure equivalency of certification programmes world wide by confirming whether they meet the IFOAM accreditation programme criteria for certification programmes and the IFOAM basic standards ( 1/11/1998). Participation to the accreditation programme is on a voluntary basis. At the end of 1998, IFOAM introduced an IFOAM accreditation logo to accompany the accredited certifiers personal one ( 1/11/1998. This logo should provide visible reassurance to consumers in countries other than those where the product originated. The EU legislation defining organic agriculture is largely based on the IFOAM system of inspection and certification. In 1991, the Council of the EU adopted a regulation on organic production of agricultural products and indications referring thereto on agricultural products and foodstuffs (EC Regulation no 2092/91, 24 June 1991). In the preamble to the regulation the Council considers that: A framework of Community rules on produc-

20 10 Institute for Environmental Studies tion, labelling and inspection will enable organic farming to be protected in so far as it will ensure conditions of fair competition between the producers of products bearing such indications and give the market for organic products a more distinctive profile by ensuring transparency at all stages of production and processing thereby improving the credibility of such products in the eyes of consumers. The Regulation was implemented on the 1st January 1993, and requires member states to set up an inspection system operated by one or more designated inspection authorities and/or by approved private bodies (Article 9). Annex 1 to the Regulation sums up the minimum requirements for organic production at farm level. Article 11 of the Regulation opens the EU organic market for products from non-eucountries. Their access is based on the concept of equivalence; production, processing, documentation and inspection must be equivalent in the exporting country. Imports are allowed from countries explicitly registered (Argentina, Australia, Israel, Switzerland and Hungary) or on a case-to-case basis which involves an import authorisation procedure. A condition for admission to the third country register is national legislation, containing rules equivalent to those in the EU Regulation. The EU legislation applies to unprocessed agricultural products from vegetable origin, as well as processed food products composed of one or several ingredients. Only processed foods with more than 95% organic agricultural ingredients can be classified as organic, whilst those with more than 70% but less than 95% can be described as partly organic. Non-organic foods are those with less than 70% of their contents being from organic ingredients. EU regulations also exclude the use of genetically modified ingredients in organic foods, which may be a key selling point with some groups of consumers (Comber, 1998). It is expected that the EU legislation will soon cover also products from animal origin. Already in June 1995, the EU commission was authorised by the EU council to replace the standard indication Organic farming - EEC Control System by a graphic symbol. However, the logo has not yet been presented, because organic farmers associations oppose such a logo since it is likely to diminish the profile of their own logos in the market (Schmidt, 1996). Following the implementation requirement of the EU regulation 2092/91, all EU member states have by now designated certification bodies which all have their own inspection schemes, symbols and organic standards. 2.6 Organic production in Europe European organic production steeply increased in the last decade: the number of organic farms rose from less than 10,000 to more than 80,000, and the acreage from less than 250,000 to more than 2,200,000 ha (cp. Comber, 1998, Rippin, 1999, Willer, 1999). The official figures on organic agriculture in Europe are being collected and published by Dr. Nicolas Lampkin from the Welsh Institute of Rural Studies in the UK, and are as yet only available for More recent country figures differ between authors, and are therefore indicative. Table 2.3 gives estimations about organic acreage, including land in conversion, in 1998 and average annual growth rates in the last five years.

21 Greening of food supply chains 11 Table 2.3 Organic acreage, including land in conversion, in the EU member states, plus Norway and Switzerland. Country Organic acreage in 1993 (ha) Organic acreage in 1998 (ha) Relative share in 1998 (%) Average annual growth rate (%) EU 800, , Austria 170, ,000 a Belgium 3,800 6,800 a Denmark 26,000 90, Finland 38, , France 120, , Germany 225, , Greece 0,400 7, Ireland 5,500 29, Italy 90, ,000 a Luxembourg 0,320 0, Netherlands 9,000 19, Norway 3,779 15,581 b Portugal 4,000 17, Spain 30, ,000 a Sweden 60, ,000 a Switzerland - 78,369 c United Kingdom 82, , a-situation in 1997; b-based on data received from Debio, 10/6/1999; c-based on data from Helga Willer, 17/3/1999. Table based on: Rippin, 1999 and Eurostat. All European countries show a growth of acreage and number of farms involved. Since 1997, Italy is the country with the highest organic acreage in absolute terms, notably 610,000 ha in 1997, while Germany and Austria follow at a considerable distance with respectively 374,000 ha in 1998 and 350,000 ha in Countries with relative shares above the EU average of 1.6% include Austria (10.1%), Switzerland (7.3%), Finland (5.5%), Italy (4.1%), Denmark (3.3%), Sweden (3.2%), and Germany (2.2%). The Netherlands with its 1% of organic land use can be classified somewhere in the middle. Among the countries with the highest growth rates in recent years are the Mediterranean countries, Ireland, Norway and Denmark. Between 1993 and 1998, their average annual growth has been above the EU average of 45.3%. The Dutch growth rate was in the same period well below the EU average, notably at 22.2%. When the figures of relative organic acreage and annual growth are combined, the countries can be categorised into four groups. The first group consists of countries with a high relative share as well as a high growth rate (both above the EU average); they may be considered the booming countries in organic production. Denmark and Italy fulfil these conditions totally, and Finland nearly. Countries belonging to the second group passed the booming years and are now stabilising which is indicated by a high relative share in combination with a low growth rate (below the EU average). These are Austria, Sweden and Germany. The third group consists of countries with a low relative share in combination with a high growth rate, including Greece, Ireland, Norway, Portugal and Spain. These are the countries with a high potential: in a few years, they may turn out to be either booming or lagging behind. Countries of the fourth group are lagging behind which

22 12 Institute for Environmental Studies is represented by a low relative share as well as a low growth rate, notably Belgium, France, Luxembourg, the Netherlands and the UK. For Switzerland, it was not possible to make a proper assessment because the necessary data about the development of organic production are as yet not available. However, Switzerland is expected to qualify for the group of either booming or stabilising countries. Considering the figures on organic production, it is difficult to draw unambiguous conclusions on the reduction of pesticide consumption because figures on the sales of pesticide products are only available at the country level, and not at the local or field level (see Table 2.2). In theory one may expect that countries with a high average level of pesticide inputs per hectare will benefit relatively most from conversion to organic production. 2.7 Conclusions Agricultural production is an important production sector in the EU economy. European agriculture has become quite intensive in most regions and in most cropping systems, partly due to the CAP system. Recent reforms of the CAP system are aimed at, among other objectives, reducing the environmental impact of agriculture, thus reinforcing various trends towards sustainable farming practices, including organic farming, precision farming, and integrated crop management. Organic farming stands out among these trends being relatively easy to communicate to, and recognisable by, the larger public. Within the larger context of changing agricultural practices and policies, several factors have been a stimulus to the development of organic farming. Among these factors are national policies to reduce the application of pesticides and their environmental impacts, specific regulations and policies (conversion payments), the certification of organic farming practices, and growing demand from consumers. In the last decade, all European countries showed a growth of organic acreage and the number of farmers involved. When combining the figures of relative share and average annual growth, four groups of countries can be distinguished, notably booming countries, stabilising countries, countries with a high potential, and countries lagging behind. The Netherlands belongs to the last category.

23 Greening of food supply chains Food market developments and trends in Europe 3.1 Introduction This chapter aims to give a general overview of the market situation in Europe, with a special focus on trends and developments related to the greening of food supply chains. Section 3.2 contains information about the European consumer market for food in general and the market segment of organic products more specifically. Section 3.3 describes trends and discussion themes in the European food and retailing industry. Section 3.4 contains conclusions. 3.2 The market for food in Europe The market for food in European countries is influenced by a large variety of characteristics, including e.g. income, life styles, and food culture. In the context of this study we were not able to go into detail on this subject. However, to give a first impression of the issues at stake, we included Table 3.1 providing basic figures on the population of the EU member states, the GDP per inhabitant, relative household expenditure to foodstuffs, and domestic organic food consumption. Four European countries have a population of more than 50 million people: Germany, the UK, France and Italy. As a consequence these countries represent the largest consumer potential in the EU. The GDP per inhabitant varies between the extremes of Greece (13,138 ECU) and Luxembourg (31,531 ECU). Countries with a GDP above the EU average of 18,979 ECU are Austria, Belgium, Denmark, France, Germany, Italy, and the Netherlands. Related to the share of household expenditure to foodstuffs, the people in the Mediterranean countries spend relatively the largest share of their income on food, and the people in Germany, Luxembourg, the Netherlands and the UK the smallest share. Organic food is one of the fastest growing sectors of the entire European food market. Sales nearly tripled in value between 1990 and 1997, rising from 1,438 million ECU to be worth in excess of 4,271 million ECU, and the market is forecast to grow from its current level of under 2% to take 10% of total food sales by the year 2006 (Comber, 1998). Germany, the UK and France represent the largest markets for organic products in absolute terms. Regarding relative consumption shares, we consider the value of 1% as the limit value indicating whether the consumer market in a certain country has left its niche and has become mainstream. Table 3.1 shows that five European countries already passed the magical line, notably Austria (5%), Denmark (3%), Germany (2.5%), Switzerland (1.5%), and Sweden (1-1.5%). The Netherlands belongs to the countries with a less developed consumer market for organic food. Generally, the level of consumer interest in organic foods is higher in northern Europe than it is in southern Europe, where the emphasis is on the production of organic food for northern European markets (Comber, 1998). Overall, purchasers of organic food tend to be the wealthier consumers. The main reasons to consume organic products are related to food quality and safety, environmental awareness and animal welfare.

24 14 Institute for Environmental Studies Table 3.1 Population of the EU, the GDP per inhabitant, expenditure to foodstuffs, and share of domestic organic food consumption. Country Population (1000 inhabitants) GDP/inhabitant (ECU) Share of household expenditure to foodstuffs in 1996 (%) Share of organic food consumption in 1998 (%) Austria 8,068 21, Belgium 10,170 21, < 1 Denmark 5,275 21, Finland 5,132 18, France 58,492 19, < 1 Germany 82,012 20, Greece 10,487 13, < 1 Ireland 3,652 18, < 1 Italy 57,461 19, Luxembourg , a < 1 Netherlands 15,567 19, < 1 Norway 4,370 d Portugal 9,934 13, c < 1 Spain 39,299 14, b < 1 Sweden 8,844 18, Switzerland 7,060 d United Kingdom 58,902 18, Total EU 373,713 18, a - a-situation in 1991; b-situation in 1993; c-situation in 1995; d-situation in Table based on: Eurostat, European Commission, Directorate-General for Agriculture, and Comber (1998). The supply side of the European organic food market is highly fragmented, with thousands of small to medium-sized specialist companies in operation (Comber, 1998). In recent years, however, there have been several important developments that are changing the characteristics of the market. First, some of the large multinational food companies based in Europe started to offer organic product lines besides their conventional ones, but sales in pan-european terms are (still) insignificant in comparison with those of their mainstream brands. Examples including for example Groupe Danone (France), Del Monte (UK), Nestlé (Switzerland) and Unilever (UK/NL) will be discussed in Chapter 4, in the profiles of the home countries of these companies. Basically, these companies choose between two strategies, either the taking over of a specialist organic company or the establishing of a new product line from scratch. Second, supermarkets became increasingly involved in the organic market, and launched organic retailer own brands. The inception of the European organic movement dates back more than 50 years, but it was only in the 1970s, with the expansion of nature food stores that organic foods began to achieve a commercial significance (Comber, 1998). Since then the market has changed dramatically: in the late 1990s organic foods are increasingly achieving mainstream status, and this is reflected in a drastic change in distribution. Today, supermarkets represent over 50% of sales in several European countries, including Austria, Belgium, Denmark, Finland, Sweden, Switzerland, and the UK. In Germany, Italy and the Netherlands, however, nature food stores still have a dominating position (Comber, 1998).